(1) This appeal under clause 10 of the Letters Patent raises a question upon the interpretation of S. 17 of the Displaced Persons (Debts Adjustment) Act, 1951.
(2) On 1-3-1947, Mr. B. L. Raikhi proprietor of M/s. Pritams, Anarkali Lahore, executed a pronote in a sum of Rs. 20,000/- in favour of the Simla Banking and Industrial Company Limited, Lahore. Simultaneously with this he executed a letter by virtue of which he pledged his entire stock-in-trade with the Bank.
(3) Shortly after the partition of the country Mr. Raikhi migrated to India. On 12-7-1948 he appeared in the Branch of the Bank at Delhi and stated that he had been able to retrieve a portion of the stock-in-trade from Lahore and that he was prepared to hypothecate the same with the Bank in lieu of a sum of Rs. 20,000/-which was still due from him. The Bank accepted the offer and he accordingly executed various documents, among others being a pronote in a sum of Rs. 20,000/- a letter of continuity hypothecating the goods which had been retrieved by him from Lahore and a balance confirmation slip admitting the balance due from him as Rs. 20,074/14/-. He also addressed a communication to the Bank in which he stated that he was about to shift the goods hypothecated by him from Ludhiana to New Delhi.
(4) The respondent did not repay any of the amounts which due from him either on account of the principal or on account of interest.
(5) As the Bank had in the meantime gone into liquidation, it put in a list of debtors under S. 45D of the Banking Companies Act, 1949, and mentioned the name of Mr. B. L. Raikhi as debtor to the extent of Rs. 20,443/15/3 on account of principal and interest up to the 1st day of July 1953. The learned Single Judge, who was called upon to consider this list, came to the conclusion that the amounts payable to the Bank were regulated by the provisions of S. 17 of the Displaced Persons (Debts Adjustment) Act, 1951, and that according to this provision of law the Bank was not entitled to any decree except to the extent of the value of the goods which had been brought by him from Pakistan to India and which had been actually hypothecated by him to the Bank. The Bank is dissatisfied with this order and has come to this Court in appeal.
(6) Section 17 of the displaced Persons (Debts Adjustment) Act is in the following terms:
'17. (1) Where in respect of a debt incurred by a displaced debtor and secured by the pledge of movable property belonging to him, the creditor had been placed in possession of such property at any time before the debtor became a displaced person, the following rules shall regulate the rights and liabilities of the creditor and the debtor, namely:
(a) the creditor may, if he is still in possession of the pledged property, realise the sum due to him by the sale of such property after giving to the debtor reasonable notice of the sale;
Explanation I. For the purposes of this section, the creditor shall be deemed to be in possession of the pledged property in any case in which the pledged property, although not delivered to him was delivered to a person authorised by him or was being held by the debtor on behalf of the creditor, and the ownership or possession thereof could not have been transferred to a third party without the express consent or permission of the creditor............'
(7) Mr. Awasthy, who appears for the Bank, contends that the creditor was never placed in possession of the property which was hypothecated to him and consequently that neither the provisions of cl.(a) nor the provisions of cl.(b) of S. 17 of the Act of 1951 can be said to apply to the present case.
(8) This contention appears to me to be wholly devoid of force. The provisions of this section apply when the creditor has been 'placed in possession' of the property which is hypothecated to him, and according to the Explanation, the creditor is to be deemed to be in possession of the pledged property in any case in which the pledged property, although not delivered to him, was delivered to a person authorised by him or was being held by the debtor on behalf of the creditor and the ownership or possession thereof could not have been transferred to a third party without the express consent or permission of the creditor.
It may be that the goods were never delivered to the Bank itself or to a person authorised by the Bank, but it is abundantly clear from the evidence on record that the property which was hypothecated by the respondent to the Bank at Lahore remained in the possession of the debtor himself. It is equally clear that this property was being held by the debtor on behalf of the creditor and the ownership or possession thereof could not have been transferred to a third party without the express consent or permission of the creditor. This conclusion flows from the meaning which is assigned to the expression 'hypothecation' by legal compilers and commentators. The civil law recognised two kinds of pledges viz. The 'pignus' (pawn) in which the possession of the thing was actually delivered to the person for whose benefit the pledge was made, and 'hypotheca' (hypothecation) in which the possession of the thing pledged remained with the debtor, the obligation resting in mere contract without delivery.
In one case possession was actually delivered to the creditor or pawnee, in the other remained with the debtor. Hypothecation has been defined as a right which a creditor has over a thing belonging to another, as which consists in the power to cause it to be sold in order to be paid his claims out of the proceeds. It is an Act of pleding a thing as security for a debt or demand without parting with the possession. It follows as a consequence that although the property remains in the possession of the debtor, it cannot be transferred to a third party without the express consent or permission of the creditor.
(9) I entertain no doubt in my mind that the respondent in the present case had hypothecated the property to the Bank and consequently that the Bank must be deemed to have been placed in the possession of the property hypothecated to it. I would accordingly hold that the decision of this case must be regulated by the provisions of S. 17. The order of the learned Single Judge must be upheld and the appeal dismissed with costs. Ordered accordingly.
(10) I agree.
(11) Appeal dismissed.